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Assets & Annuities > Annuities Information

Annuities are unique savings vehicles simply because the interest earned is tax-deferred. That means you do not pay tax on your interest until you draw it out, and you only pay tax on the specific amount you take.

Most retired persons have money in bank certificates of deposits (CDs). You must pay tax on interest earned every year, whether you draw it out or not. This lowers your yield since you are not earning interest on interest because of taxes.

In addition to the tax advantage, annuities generally offer higher interest rates than CDs. Let me give you an example of how an annuity can provide the security you need in retirement.

For the purposes of this illustration, we will use: a married couple in a 25% tax bracket, with life savings of $100,000.

In a CD yielding 5%, annual income $ 5,000

In an Annuity yielding 7% annually 7,000

Letís say they need $3,000 per year to cover premiums for a long-term care policy and a life insurance policy.

 

Using income from a CD

CD earned

$ 5,000

Less taxes paid

-1,250

Net annual income

3,750

Less premiums

-3,000

Balance reinvested

$ 750

Using income from an Annuity

Annuity earned

$ 7,000

Less premiums

- 3,000

Less taxes paid on amount withdrawn

- 750

Balance reinvested

$ 3,250

 
You would have $2,500 more the first year just by switching from a CD to an annuity! Withdrawal is penalty free if nursing home care is needed.
 

 
   
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